Percentiles (repost from 2011)

One of the most striking successes of the Occupy Wall Street movement has been the “We are the 99 per cent” idea, and more specifically in the identification of the top 1 per cent as the primary source of economic problems.

Thanks to #OWS, the fact that households the top 1 per cent of the income distribution now receive around 25 per cent of all income (up from 12 per cent a few decades ago) has been widely disseminated. The empirical work on tax data that produced this evidence, done most notably by Piketty and Saez, has been slowly percolating into the mainstream consciousness, but “We are the 99 per cent” has hammered it home with surprising speed.

Even more surprisingly, the analysis as it relates to the 1 per cent has been almost unchallenged by the organized right. Having spent decades denying the obvious growth in inequality, and of the wealth and power of the super-rich, the right has implicitly conceded to reality on this point.

Their response to ‘We are the 99 per cent’ has been the snarky claim that ‘We are the 53 per cent’. This line is based on the lame and long-refuted WSJ ‘lucky duckies’ talking point, that low-wage workers ‘pay no income tax’. It is, of course, true that many workers don’t pay the tax called the Federal Income Tax’ , but they do pay the Social Security payroll tax, which is a tax on wage incomes, not to mention sales taxes and many others. By contrast, capital gains, the preferred income source of the ultra-wealthy, are not subject to payroll tax and attract only half the standard rate of the Federal Income Tax.

What’s more interesting to me is the 53 per cent number, redolent of the Buchanan-Nixon plan to ‘tear the country in half and take the bigger half’. It stands in stark contrast to the hypocritical complaints of Republican politicians about class warfare and turning Americans against each other. The fact that anyone could see this slogan as clever politics is an indication of the costs that are eventually incurred in the creation of a hermetically sealed thought bubble like that of the US right.

Coming back to reality, I’d like to think a bit about the relationship between the 1 per cent and the remaining 19 per cent of the population in the top quintile (that is 20 per cent). Most if not all of the bloggers here at CT fall into the latter group. Given our lamentable lack of market research, I can’t say much about readers, but a reading of the comment section suggests that most of our readers also belong to this group.

The top quintile as a whole commands the great majority of US income, and virtually all financial wealth – few households outside this group own much beyond their homes and perhaps some money in a pension fund. It follows that any significant improvement in public services, or in the position of the unemployed and poor, must be funded by higher taxes on the 1 per cent, the 19 per cent or both.

The 19 per cent also have a disproportionate political weight, since they are much more likely than Americans in general to register, vote and engage in political activity. So, it makes a big difference whether, as as implied by ‘We are the 99 per cent’ their interests are aligned with the mass of the population or with the top 1 per cent.

Until quite recently, I would have (and did) argued against this view. The top quintile as a whole has done very well over the past few decades, and (despite some silly claims to the contrary), high-income earners have mostly voted Republican, in line with their economic interests. Certainly there are plenty who don’t vote their interests, but that is also true of many people in the top 1 per cent, not to mention bona fide billionaires like Buffett and Soros.

There was always an argument in terms of enlightened self-interest or class-interest, that it was better to give up a bit of (pre-tax and post-tax) income to maintain a stable and relatively egalitarian society. But in an individualistic society like that of the US such arguments don’t go very far.

As far as policy is concerned, my implicit assumption, formed in a relatively egalitarian society, was that taxes imposed only on the very rich might be satisfying but couldn’t raise a lot of money. So, for example, I dismissed Obama’s focus on ending the Bush tax cuts for incomes above $250k (roughly, the top 2 per cent). In the ‘Trickle Down’ chapter of Zombie Economics, I looked mainly at the top 20 per cent (or sometimes 10 per cent) of the income distribution rather than the top 1 per cent.

I’m now much more sympathetic to the ‘99 per cent’ analysis. First, a closer look at income growth figures suggests that, while the 19 per cent have enjoyed rising incomes, they’ve only barely maintained their share of national income. The redistribution of the past three decades has gone from the bottom 80 per cent to the top 1 per cent.

That suggests the possibility of a policy response in which the main redistributive thrust would be to reverse this process. This would almost certainly involve higher tax payments, but this would be offset by the restoration of public services, which are in economic terms a ‘superior good’, valued more as income rises. The top 1 per cent can buy their own services, and are largely unaffected by public sector cutbacks, but that’s not true of the 19 per cent.

Another important factor is the growth of economic insecurity. The myth of the US as a land of opportunity for upward mobility has been replaced by Barbara Ehrenreich’s Fear of Falling (another good source on this is High Wire by Peter Gosselin). Even if people in the top 19 per cent are doing well, they are less secure than at any time since the 1930s, and their children face even more uncertain prospects.

Finally, there is the alliance of the 1 per cent with the forces of rightwing cultural tribalism. The 1 per cent can only rule by persuading lots of people to vote against their interests, and that requires a reactionary and anti-intellectual agenda on social, cultural and scientific issues. As a result, educated voters have increasingly turned against the Republican Party.

I don’t want to make too much of this last point. As Allan Grayson said during his memorable takedown of PJ O’Rourke recently, the 1 per cent own the Republican Party outright, but they also own much of the Democratic Party, and can rule satisfactorily through either. Also, having a college degree isn’t the same as being educated – Tea Party supporters are more likely than the average American to have a degree, and college-graduate Republicans are even more prone to various delusional beliefs on issues such as climate change.

Nevertheless, taking account of all the factors listed above, even the most comfortably affluent members of the professional class, looking at the alliance of plutocrats and theocrats arrayed to defend Wall Street could reasonably conclude that it was in their own interests to support the 99 per cent and not the 1 per cent.

Can all of this be sustained? I don’t know, any more than anyone else. But #OWS has already achieved things that most people would have regarded as impossible a month ago, and for the moment at least, the momentum is still growing.

The fact that J.Q. can re-post without change shows what a stasis we are in. There is no new news after the Great Recession, just the endless drift sideways. Occupy Wall Street and Black Lives Matter have both fizzled out. They could be reignited but we see no sign of it. A “totalising system” allows of no reform. It must continue unreformed or it must collapse. Wolfgang Streeck seems to diagnose the situation best.

“It seems, however, that disorganized capitalism is disorganizing not only itself but its opposition as well, depriving it of the capacity either to defeat capitalism or to rescue it. For capitalism to end, then, it must provide for its own destruction—which, I would argue, is exactly what we are witnessing today.”

If you look at the welfare state in Australia, it was the Liberal Party under Menzies that established it. I suppose the Liberal Party could be classified as progressive, in part, as they have progressive and conservative factions within the party.

I heard that Malcolm Turnbull might be planning a Blue-Green Welfare State 2.0 strategy for the Liberals, like conservative environmentalism, rather than Red-Green left wing environmentalism.

I don’t know what the policy details are beyond that, apart from the already announced Snowy 2.0 and the book Menzies 2.0 that Katherine Murphy gave a bad review of in The Guardian the other week.

The real issue is whether a seemingly endless trend to inequality will eventually lead to revolution and maybe counter-revolution (reactionary suppression). Valid reductio ad absurdum reasoning indicates that a trend to greater inequality cannot continue indefinitely. Once the majority cannot eat nor find shelter then the situation becomes impossible. Indeed, the socioeconomic system would become endogenously unsustainable and radically unstable well before that point.

So the questions really are, what kinds of revolutions, what kinds of reactions, at what times and with what outcomes? We need to stem the trend to the preconditions for the barbaric and anarchic outcomes which inevitably follow when revolutions become violent. Democratically directed reform is necessary. However this time round, compared to the Keynesian economics “Golden Age of Capitalism” period of 1946 – 1973, the reforms cannot stop before a radical re-working of capitalist ownership itself.

State tax/welfare redistribution, after the operation of capitalist ownership and income distribution, has failed. The real system direction since 1973 is the empirical proof. Capitalist owners remained in possession of sufficient wealth to control the mass media, propagandise heavily by political advertising and to “manufacture consent”. Capitalist owners remained in possession of sufficient wealth to take effective control of government by lobbying and buying off politicians. The ownership of wealth by the 1% or rather the .01% must be reduced to make these stratagems affordable and impossible.

However, I can’t agree with the claim that “If you look at the welfare state in Australia, it was the Liberal Party under Menzies that established it.” Menzies deserves credit for maintaining the welfare state he took over from Curtin and Chifley. But I don’t think anything much was added by Menzies or his Liberal successors.

I think the answer is (a) plus (c) though (c) is the the most operatively important factor. There’s something about the American system in its entirety which close to guarantees the same substantive outcomes irrespective of who the President is or even which party controls the Congress and Senate. What is it about the U.S. system? How can a system locked into upward spiraling inequality, upward spiraling aggression (domestically and internationally) and feedback loops which intensify these tendencies ever be reformed?

I don’t think it can be. This means the U.S. system would have to break down. A break down will cause revolution, reaction and war(s). I wish I could be more sanguine about the picture.